Carlos Serrano, Chief Economist, BBVA México: Interview

Interview

Interview: Carlos Serrano

What regulatory measures need to be taken to boost competitiveness, ease access to credit and spur socio-economic growth?

CARLOS SERRANO: Mexico has a strong regulatory framework, especially with regard to prudential regulation, which has enabled the continued expansion of credit, robust capital and liquidity positions, as well as the entry of new agents. Nevertheless, there is always room for improvement, particularly with easing access to credit and spurring socio-economic growth. To achieve this, simplification is key, whether it is to avoid unnecessary requirements, streamline processes, or make compliance and supervision more efficient. We also need to protect small investors against stock market abuse. The perception of corruption in the market contributes to the middle class’s aversion to investing in securities. A stronger framework on rules of conduct for the sale of securities is needed, as well as better supervision by financial regulators. Due to a lack of funds and insufficient human resources, the focus of supervisors has revolved around ensuring literal compliance with rules and regulations, instead of adding value to risk management, analysis, market stability, discipline and enforceability. This presents a considerable risk for rapid deterioration in both oversight and regulation. However, the country still has time to modernise financial supervision, improve human resources and take a more flexible approach, as well as employ IT to lessen the compliance burden and free resources for core business activities for both banks and regulators.

How can the financial industry increase the bank penetration rate throughout the country?

SERRANO: Providing digital financial services should be a core theme in the coming years. Certain banks have already taken great strides in this direction, while others are just beginning. Financial technology (fintech) promotes cost cutting and efficiency, while providing greater value for customers. Offering traditional bank services to rural populations living in isolated and remote areas is not economically feasible, making fintech the right mechanism to foster financial inclusion.

The present administration has a unique opportunity to promote financial inclusion at a time when advances in technology and communications, coupled with a healthy financial system, make it possible to widen participation. A new model, based on bringing services to the consumer without brick-and-mortar branches or offices holds great promise for inclusion, and opens the door to untapped sources of profit for financial intermediaries. This is particularly relevant in an environment of falling interest rates and economic slowdown. Nevertheless, the government must tackle informality and improve the how the judicial system functions, given that the recovery of collateral is still a very complicated process in many states.

In what ways are banks protecting customer information and financial systems from cyberattacks?

SERRANO: According to the Organisation of American States, all banking institutions in Mexico have identified cyberattacks as a threat to their digital security. Both banks and financial institutions have acknowledged the risks associated with these practices and are trying – with varying degree of success – to improve their defences. The diversity in Mexico’s financial system means that some institutions are better than others in securing their data and systems. Therefore, there is a great need for regulatory authorities to steer the industry’s efforts in this regard, as they can better ensure the observance of minimum standards and best practices by banks. Likewise, given the nature of financial institutions’ relationships, industry associations should also play a greater role. Mexico has a solid regulatory framework with regard to cybersecurity; however, better supervision is needed to strengthen the broader financial system and guarantee the security of customers and clients’ information and deposits.

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